How to File Taxes for a Partnership LLC
If you're wondering how to file taxes for a partnership LLC, you should first understand how a partnership LLC works.3 min read updated on February 01, 2023
If you're wondering how to file taxes for a partnership LLC, you should first understand how a partnership LLC works. LLCs come in many shapes and sizes. And while there are many different types of business and many different styles of business management, there is definitely a right and a wrong way to file taxes for a partnership LLC.
What is an LLC?
The very first step in filing taxes as a partnership LLC is to be sure that you've formed a legally recognized LLC.
An LLC is a company that combines the limited liability characteristic of a corporation and the simplified tax benefit of paying through the owners/partners of a sole proprietorship or partnership. These owners, also known as members, are only taxed once. In order to do this, you'll need to ensure that each individual partner is listed.
The Steps Needed to Create an LLC
The Employer ID number will be used to identify your business on any forms sent to the IRS, including W-2's and 1099's. Even if you never hire additional employees, you must obtain this important number.
You'll also need to register your LLC in its state of residency. This often involves contacting the Secretary of State's office and, depending on your state of residency, filing a Certificate of Organization.
Before you begin to form a hybrid business structure, such as an LLC, you must first understand how to file taxes for a partnership LLC.
Fill out Forms
First, you'll need a Form 1065. This is the form that allows the partnership LLC as an entity to report its income. Then the individual partners will pay income taxes based on their individual tax rates, rather than paying as an entity. This means that no tax is calculated from Form 1065; it's simply the means of showing the IRS how much you've earned.
Based on profits and loss and capital gains and liabilities, shares are distributed as a responsibility of each individual partner, depending on the terms of their partnership agreement. This information is listed on a K-1 form, which is in turn filed on the partners' tax returns.
It is important that both forms K-1 and 1065 are sent to the IRS for prompt and up-to-date tax records.
Partnerships, Pass-throughs, and Deductions
Each member of an LLC is only taxed once, and although profit and loss and money are important, there are other relevant aspects of an LLC that are significant.
There are various factors that impact the size of partner shares within an LLC. The number of responsibilities a partner has, any salaries they may be paid as an employee, and other various terms that are based on the LLC's written partnership agreement affect the size of partner shares.
Neither partnerships nor limited liability companies are separate entities, so no federal taxes are paid at the organizational level. Business taxes and deductions are paid based on the size of partner shares and deductions for each partner. LLC owners are also protected from certain legal liabilities that corporate shareholders face.
Five Steps to File Taxes at an LLC
Once forms 1065 and K-1 are on file with the IRS, the amount of information needed to file taxes for a year is relatively straightforward.
Fill out your forms
- Year-end Balance Sheet - This information must also include the figures for any properties purchased by the LLC within that year.
- Profit and Loss Statement - The copy of this workshop shows categories of expenses, such as inventory, supplies, etc., that were purchased and used during the year.
- Partners Share Listings - This listing must show a complete record of all partners within the LLC, as well as the number of shares held by each individual partner.
- Keep updated information. Updating these records regularly and having a system in place to track expenses throughout the tax year can save you. Don't forget any franchise fees.
- Show your accounting method.
- Review your information.
- File your papers. These forms must then be filed by April 15th or an extension must be filed. And this can be done electronically or by mail. You'll need to file state and federal returns.
Filing taxes for a partnership LLC doesn't have to be intimidating or confusing. By ensuring that you record proper information when creating an LLC and updating it regularly, you have information that is ready for tax time.
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